Income Statement Breakdown (Part 4): Finding the Bottom Line

We’ve been taking apart the income statement to help you better understand it and so that you can find money-saving, profit-increasing opportunities inside of it. This is the fourth and final step in the process and here we are getting close to the bottom line!

So far we’ve…

• Looked at Revenues and came away with Net Sales
• Looked at Cost of Goods Sold (either accrual or cash-based) and came away with Gross Profit
• Looked at Operating Expenses and came away with Net Profit

But those are not the only people who have their hand in the cash register! Let’s not forget banks and the government. In this fourth and final section of the income statement breakdown, we need to make sure they get their share.

Like the other sections, you add up the various expenses you have here and subtract it from Net Profit. This section is sometimes called “Non-Operating Expenses”. If you have shareholders, some of their payouts go here, too.

Now let’s look at this part of the income statement and we’ll compare how the accrual and cash-based system work so you can see both in action:

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Tags: Accrual, Banks, Bottom Line, Cash Register, Gross Profit, Income Report, Income Statement, Money, Net Income, Net Profit, Net Sales, Operating Expenses, People, Shareholders, Statement Numbers

Income Statement Breakdown (Part 3): Operating Expenses

This is part 3 of a 4 part series on the income statement. Taking the time to understand each part of your income statement will help you to save money and make more money in your business.

In the Revenues section of your income statement, you started with Gross Sales and ended with Net Sales.  In the Cost of Goods Sold section of your income statement, you had the choice of either using the accrual method or the cash method to take the Net Sales number and end up with Gross Profit.

Now, we’re looking at operating expenses. Operating expenses, as the name implies, are the expenses associated with running your business. These expenses might include salaries, advertising, supplies, rent, insurance, utilities, and depreciation. These are added up and subtracted from the Gross Profit number we calculated in the last section of the income statement. The number we’ll end up here is sometimes called Net Profit and sometimes called “Income”.

Let’s keep building on the income statement of the fictional business we’ve been talking about, but we’ll use both the accrual example and the cash example so you can see how both work:

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Tags: Accrual Method, Business Expenses, Business Salaries, Cash Method, Depreciation, Gross Profit, Gross Sales, Income Statement, Insurance, Money, Net Profit, Net Sales, Operating Expenses, Raw Materials, Running, Shipping, Subtotal, Taking The Time

Income Statement Breakdown (Part 2): Cost of Goods Sold

Over the next few blog posts, we’re breaking down the income statement so you can understand how it works, see how it impacts your business, and find new opportunities to improve your business because of it. Last week we covered the Revenue section. We started that section with Gross Sales and finished it with Net Sales.

Now we’re looking at the second section of your income statement, Cost of Goods Sold (sometimes called “COGS”). Here, we’ll add up all the costs associated with creating your product or service, and then we’ll subtract it from the Net Sales amount you came away with in the previous section.

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Tags: Accrual, Business Week, Cafeteria, Cogs, Cost Of Goods Sold, Gross Sales, Income Statement, Measurement, Money, Net Sales, New Opportunities, Raw Materials, Stools, Two Different Ways

Income Statement Breakdown (Part 1): Revenue

Your business’ most basic numbers are revenue, expenses and profit and most people just pay attention to those. That might work at a basic level but “revenue minus expenses equals profit” is too simple. Business owners need to know how various expenses impact their business. In this 4-part series, we’ll break open the income statement so you can see how different elements work together and what each one means to you.

The first part of the income statement is the Revenue section. This is all the money that comes into your business. Gross Sales is counted here (which is all the money you get paid) and returns and discounts are taken off. At the end of this section is Net Sales.

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Tags: Break, Business Owners, Elements, Employee Wages, Gross Sales, Income Statement, Marketing, Mistake, Money, Net Sales, New Opportunities, Period Of Time

Inflation: Your Silent Enemy

Inflation is the rising price of goods. I call it “your silent enemy” because it is not easy to keep track of in your business and it’s not easy to reflect in your financial statements but it’s a reality you face every day when you buy goods and services to run your business.

Simply put, things cost more today than they did yesterday and they cost more yesterday than they did the day before.  That’s inflation. If you don’t occasionally consider the impact of inflation on your business, you’ll watch your profitability erode without even realizing it.

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Tags: Assets, Certificate Of Deposit, Deposit Banks, Difficult Times, Financial Statements, Fyi, Impact Of Inflation, Interest Savings, Money, Profit Margin, Profitability, Savings Account, Silent Enemy